March 24, 2021

B2B networks are the next big software tool for SMBs

Investors love SaaS — but now there's a new B2B playbook that could also steal their hearts. Say hello to the ‘B2B marketplaces’.

George Henry

5 min read

When the SaaS model emerged two decades ago, it allowed smaller companies to buy and use software over the internet, triggering a massive wave of digital transformation in the business world. Over this time, SaaS has become the dominant business model in B2B. But now there’s a new B2B playbook that could deliver a similar wave of transformation and returns. 

Say hello to the ‘B2B marketplaces’: social networks in a B2B environment.

These companies typically address sectors in the economy that are not yet digitised and have been traditionally hard to penetrate, like restaurants, construction and agriculture. B2B networks gain traction with these sectors by handling core functions like ordering, invoicing, payments, etc.

Looking at these companies — sometimes described as ‘vertical SaaS’, ‘SaaS-enabled marketplaces’ or ‘B2B marketplaces’ — through a consumer lens helps us to understand better the true long-term potential of these companies: the scale they can reach and the business they can build. Like social networks, the most exciting companies start by developing a breakthrough product focusing on an individual user with high engagement that builds a valuable network over time. 


 The network playbook

Consumer networks like Facebook, Instagram and Twitter grew quickly, mostly through virality. In his blog post, ‘Come for the tool, stay for the network’, a16z partner Chris Dixon gave a great description of how these apps became valuable by growing through two successful loops: first, they built a productivity tool that progressively turned into a network. Second, they leverage and monetise the networks.

This playbook is now being replicated in B2B environments and patterns of success are emerging.

The starting point of these companies is to remove friction caused by inefficient offline workflows such as pen and paper appointment bookings in beauty, or using fax machines or phone calls to order food supplies in restaurants. 

A second characteristic is that the task performed often requires internal collaboration (eg. authorisation from a superior) helping the tool get internal adoption and boosting retention. 

A third and key characteristic is that the product connects the business to a third, external party. This is fundamental to building the network and why successful networks often relate to communication, ordering, contract creation, invoice management and similar. 

Take REKKI, part of the LocalGlobe portfolio. The company launched as a mobile app to help restaurants order from their favourite suppliers. This fundamental yet time-consuming part of a chef or sous-chef’s job relied on pen and paper, or voicemails being left between chefs and their suppliers. 

REKKI digitised that process: it allows teams to send orders via a chat app, reducing wastage and speeding things up. As chefs spread the word about the benefits, more restaurants joined, which brought with it more suppliers. 

The network effects meant REKKI could expand its services beyond communication, helping suppliers manage contract creation and invoice management within the app. That brought more non-REKKI customers to the platform and the network grew further.  What began as a communication tool is now a network. 

The playbook is still being written but we see a growing number of companies applying some elements of this model in various markets like Cargo.one for air freight, Cosuno.de and Compa.co in construction, and Rooser.eu and Agro-league in food. In the US, ServiceTitan is a good example operating at scale already. 

Turning a profit

How to monetise is the key question all successful social networks face in the early days, and B2B networks might also delay monetisation to capture most value in the long term. 

They could charge a SaaS fee; however even a low fee could slow down the growth of the network. 

Or these networks could charge transaction fees. However, B2B trade often relies on established offline relationships so startups need to be able to justify their margin by adding value to both parties. To be a meaningful revenue stream it would require massive volume of orders and payments going through the platform.

Sophisticated search and recommendation tools... [are] a huge opportunity for B2B networks.

B2B networks can also introduce sophisticated search and recommendation tools, to make it easier for users to find, buy and sell things. For example, REKKI can help suppliers sell more to restaurants, chefs can discover new suppliers or items thereby following the model established by Google and Amazon, who have effectively monetised their efficient search and recommendation engines. Cargo.one has turned its booking tool for shipping customers and airlines into an automatic matching of available cargo routes. This is a huge opportunity for B2B networks.

Then there’s financial services. The successful networks will have incredible data going through their platforms and will often sit in ordering or payment flows. In time, they should be able to provide financial services traditionally offered by banks such as fast payments, invoice factoring and lending.

B2B payment network companies like Melio (US), and Libeo (Europe), which focuses on small businesses, are demonstrating this route and are rapidly growing to become valuable financial institutions. 

Goodlord, which started as a SaaS-focused business for the rental industry, is also doing this and is now generating the majority of its revenues from selling insurance products. 

Another part of the value chain where the data could create an opportunity to generate revenues is through logistics orchestration. Just like modern financial services, logistics is often a data science problem.

The reality is that the most valuable B2B networks will monetise through a combination of these different business models (marketplace, recommendation, financial services). Shopify and Square are two great examples of companies that started as business tools but their current market capitalisation is now largely driven by the network they’ve built.

We’re still in the early days of this emerging category but we think B2B networks have the potential to generate similar returns to the greatest SaaS and consumer companies.